Sir Eddie takes protesters' point

Sir Eddie George, the governor of the Bank of England, yesterday backed the claims of anti-globalisation protesters that the poorest countries are excluded from the benefits of expanding world trade.

Speaking in London, Sir Eddie said opening up markets and increasing competition were good for world growth, but it was important for the international community to provide extra help for the poorest and most indebted countries.

"At the global level - and it is here that I think some of the peaceful anti-globalisation protesters have a real point - many of the poorest, least-developed countries are effectively excluded," he said. "We need not just free but fair trade at the international level."

Welcoming the agreement of the International Monetary Fund at its meeting in Ottawa last month, which acknowledged "the special responsibility of the advanced economies in tackling the challenge of poverty reduction", Sir Eddie called on the British government to "make parallel progress" in helping the poorest and most indebted nations.

Despite supporting the view that the proceeds of globalisation are not distributed equitably at the moment, Sir Eddie cautioned against knee-jerk protectionism as a response.

"At the overall macroeconomic level, attempting to stem the tide by acquiescing in such protection would be to ignore the benefits which increased competition and more efficient and innovative production would bring to consumers generally," he told his audience, which included representatives of the World Trade Organisation and the Chinese government. "There is no doubt that market-driven competition is in our collective interest, whether at national or global level."

As Argentina struggles to agree a bail-out with the IMF to avoid defaulting on its $130bn of external debt, Sir Eddie also criticised the international system used to resolve financial crises. He suggested an amendment to IMF rules in which some limit would be agreed to the amount of credit a country could expect to receive. Without such limits, "neither side can make a sensible assessment of the risks they are taking".

The IMF has so far refused to release a $1.3bn cash injection to Argentina, forcing finance minister Domingo Cavallo to halt a run on the country's banks by imposing capital controls, and raid local pension funds to meet the government's debt repayments.

Some IMF officials, including deputy managing director Ann Krueger, have already voiced proposals for an alternative, including the possibility of allowing countries effectively to go bankrupt, to provide a breathing space for negotiations with private creditors to take place.

Despite criticising the confusion of the system, Sir Eddie said he believed contagion - by which a financial collapse in one country swiftly spreads to affect other emerging markets - had been reduced over time, with investors becoming better at distinguishing between the riskiness of different countries.

"I have been encouraged by the extent to which - since the dark days of the Asian financial crisis - financial markets have become more discriminating in their risk assessment, so that, for example, the real problems facing Argentina have had only a relatively limited impact on emerging markets as a whole."